The Producer Price Index for Final Demand gained 0.3 percent in December, on higher energy prices.

The PPI for Final Demand Less Food Energy and Trade increased by 0.1 percent in December.

Retail sales for December increased by 0.6 percent, supported by strong auto sales and rising gasoline prices. For the month, unit auto sales surged to an 18.4 million unit rate. The dollar value of retail auto sales increased by 2.4 percent in December. Gasoline prices increased from an average of $2.18 per gallon for regular unleaded in November to $2.26 in December, boosting retail sales at gasoline stations by 2.0 percent for the month. Other components of retail sales were mixed to down. Retails sales ex-autos gained a more sedate 0.2 percent in December. Softer categories were electronics, down 0.5 percent, food, down 0.3 percent, general merchandise stores, down 0.5 percent, and restaurants, down 0.8 percent in December. Strong overall retail sales in December are consistent with solid consumer spending in the last quarter of 2016, which, in turn, is supportive of ongoing moderate GDP growth for the fourth quarter. Self-reported sales at several traditional retailers were weak through the holiday shopping season even though overall sales (including internet sales) were positive. Macy’s announced that it will close 100 stores in 2017 and cut 6,200 jobs. Kolh’s also reported weaker-than-expected holiday sales. Sears is selling its Craftsman brand and will close 150 stores this year. According to the National Retail Federation, holiday retail sales over November and December were up 4 percent this season, above the NRF’s forecast of 3.6 percent growth.

The producer price index for final demand increased by 0.3 percent in December, about as expected. Gains over the last 12 months continue to trend up. The PPI for final demand is now up 1.6 percent over the last 12 months. On the goods side, producer prices were supported in December by petroleum products, light trucks, iron and steel scrap and eggs. Prices on the services side were supported by financial services, wholesaling and apparel.

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is up to 2.42 percent. NYMEX crude oil is down to $52.55/barrel. Natural gas futures are down to $3.35/mmbtu.